Should I Move My Money Out of the TSP Once I Retire?

There are pros and cons to keeping your money in the TSP after retirement.

The Thrift Savings Plan (TSP) has come a long way. It isn’t perfect but it is a lot better than it used to be, but are there still some reasons to pull your money out of the TSP after you retire?

For The 20%

This article is going to be perfect for 80% of you. It is going to summarize when it makes sense to leave the TSP (and go to an IRA) and when it makes sense to stay.

However, for the 20% of you that want more details, here is a more technical analysis of the differences between the TSP and IRA

Stay Baby Stay

The TSP has two main advantages over an IRA: Simplicity and Familiarity.

The TSP has only a handful of investment options and most participants have been using the TSP for decades by the time they retire. Consequently, it is much harder to make mistakes if your money is in the TSP simply because there are few options/ways to do so. 

Does the TSP limit your options on how you invest and withdraw your money in retirement? Yes, absolutely! But for those that don’t understand retirement accounts/investments well these limitations help keep things simple.

So for those that want simplicity and familiarity in retirement, the TSP may be your best option.  

Time To Go

People leave the TSP for two reasons: 

  1. To have more options/flexibility or
  2. To hire a financial planner to help invest their money

More Options

Instead of 5 core investment options, an IRA has thousands, and while TSP has many rules on how/when you can withdraw money, an IRA usually has very few limitations.

In IRAs, you can do Roth Conversions to lower your taxes over time while the TSP doesn’t allow that sort of thing. 

Simply put, IRAs have more options which can be very helpful for those that understand retirement accounts and investing, but it can be overwhelming for those that don’t.

Hiring a Pro

The second reason people often leave the TSP is when they want to hire a financial planner to help manage their money for them as this normally has to be done within an IRA. Hiring a pro would allow you to get all the advantages of an IRA while having someone there to make sure you don’t make any mistakes. 

While this option certainly doesn’t make sense for everyone, it can make a ton of sense for those that don’t want to spend a good chunk of their time in retirement struggling to figure out how to enjoy their money in retirement but also never run out. 

Note: While our firm does help Federal Employees manage their investments in retirement we are certainly not a good fit for everyone. If you are interested, you can find more information here. 

No Perfect Solution

Neither the TSP or an IRA is a perfect solution. They both have pros and cons, but it is up to you to pick the one that is the best fit for your situation.

About the Author

Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.